Wilens leaned back, thinking, which gave Zvi the opening to jump in.
“In reality, Michael, we gave Whitney that deal because of his connections. He knows traders, he knows money management, and he even has a platform that we might be able to use to garner a better rate with Goldman. So it’s a little bit of a different situation. His strategic ties are extremely strong. I don’t think I’d make that deal today for someone not in the industry. He’s not going to be passive in the least.”
Zvi was inadvertently helping close Wilens on the valuation I had put out there, but I instantly understood that his real motivation was to get Wilens to go higher. To Zvi, if the guy committed to a $10 million val, he could always come back trumpeting to Nu to veto and try to get him to $15 million.
Wilens put his elbows on the table.
“I’m not planning on being passive either. And while Whitney may have a different background, I know plenty of guys in finance. And with my legal and real estate skills, I can save us money on legal fees, documents, a new office, lease negotiations, and a dozen other ways. Not to mention I’ve got some very deep-pocketed friends in my Rolodex looking exactly for situations like this.”
The guy was good. I’d give him 10 percent for that one million dollars sitting in front of me, no problem. But there was a problem.
“You see,” Wilens said, “I’m looking for a bigger percentage. I’m willing to give you that million today without even looking at the firm’s books.” He paused, and to let me know that the next words out of his mouth would mark him as either a lunatic or a savvy player.
“But I want 25 percent of the company for it.”
Wilens had effectively called our bluff. If we needed the money bad enough, we might snatch it. He could always come back if we said no and ask to see the books, noting that they might justify the $10 million valuation we were seeking. “Warning Shot” rolled into tracks from Ice Cube’s Death Certificate, a fitting end for the meeting. I knew Zvi was thinking higher valuation than $10 million, not lower, but to his credit he responded very deftly.
“Well, obviously I’ll put the offer in front of Nu, but we’ve got several other offers out there on par with the $10 million valuation, from individuals we respect as well. We’d love to do something with you, but at that number, it’s frankly not going to happen. Come see the space we’re looking at, meet some of the traders, and we can sit down again with you, but the numbers we discussed today are not going to get a deal done. Again, between Raj and Gary Rosenbach at Galleon, I can get a check for $5 to $10 million, but we’d have to give up half our firm. You see, we want to retain control. We’re the ones out recruiting every night. We’re the ones putting up the eye-popping P&L numbers during the day. And we’re the ones that are going to work eighteen hours a day for the next three years to turn our operation into the next First New York. And you know what Stevie Cohen offered to buy them for last year?”
“What was the number?” Wilens eagerly asked.
“$400 million … and they said no thanks!” Zvi finished with a smirking flourish.
“Hmm. Okay. Well, I’m still interested in continuing the conversation. Talk to Nu and come back to me. In the meantime, I appreciate you guys dropping by. It was great to put a face to the ‘famous Zvi’ name. Your brother talks about you more than he talks about his wife, that’s for sure.”
“That’s because I’m more interesting. But I bet you realized that three minutes into this meeting.”
Zvi flashed a Cheshire grin, pulling down his horrible houndstooth sweater and standing to shake Wilens’ hand. I followed suit, and we walked back to reception and took the elevator to the lobby, to the soundtrack playing in my jacket pocket.
In the end we never did business with Wilens. In hindsight, his potential business was not the important part of our meeting. Instead, it was what became clear to me because of it. Namely, that by hook or by crook Zvi was going to take on the role he wanted for himself, whether you liked it or not. I saw this again and again in the investor pitches we made in all the weeks that followed.
Zvi could sell you a Hummer when gas was $5 a gallon. His only problem was he had no idea how to close. Part of closing is actually signing a contract, getting that money in the bank. To get to that part you have to have a contract. And contract terms were where Zvi would become unhinged. There was a dictatorial streak to him, a Castro-like cult of personality that made it all but impossible to come to a realistic deal. To him business, trading, life in general—all of it was war, and you either destroyed your opponent or you got destroyed. I don’t know if this was borne from the Israeli in him, that mentality of “You are always surrounded by hostile nations and you must fight for your life,” or if this attitude was simply writ large in his DNA. Only later, much later, would I get a clear answer to that question. For now, here was this smart kid who came through the working-class public school system of Canarsie, Brooklyn, where survival for a smart white kid on Flatlands Avenue was damn remarkable.
Zvi’s glasses weren’t rose colored; they were hypnotic. If the other side wanted to look at trailing twelve months, Zvi wanted to look at the future twelve months. That, actually, made sense to me. After all, with respect to Incremental, it started out as semi-conceptual, and it was the future potential that mattered from an investment point of view. We had not only survived the greatest financial collapse since 1929, but had doubled our employees and been solidly profitable for every month, including up a blowout 3 percent the same month that Lehman Brothers exploded. We were doing something right.
Zvi was able to weave a brilliant interlocking combination of hard and soft sell. The soft was “Hey, I’m from Brooklyn, raised dirt poor, made more money last month than my parents made in their lifetimes. I’m comfortable, and if this all goes away tomorrow, I’ve got no regrets, so I really don’t need or want your money. I’m just doing you a favor because Greg Ettin or Craig Drimal said you were a friend and spoke highly of you. Look, if you weren’t friends with him, I wouldn’t even be here.”
Zvi was able to make you feel that by giving him money, he was actually doing you the ultimate favor.
“I’m only here because of you-know-who, and that’s the only reason you’re even in a position to have this opportunity to give us money, but since I am here and now you’ve seen it—this … ‘machine’ of ours that rivals anything the Bellagio or Stardust can put out on the casino floor—you know you’d have to be crazy not to take advantage of it.”
We would put skeptics and ballbusters in their places by comparing the young hyper-growth returns of Incremental to whatever business or field the guy we were pitching was in. Most of these guys were megamillionaires who had plateaued with whatever they were doing and got a hard-on contemplating returns in the mid-teens. Anything in the 20s and they were salivating. We were offering 30s and 40s, or, if Zvi thought the guy wanted 40s, then 50s was our target. If he wanted 50s, Zvi would say that triple digits were not out of the question. He was never going to be underbid and there was no ceiling. We were selling futures. It wasn’t unlike stock analysts who came up with any number their investment banking brethren needed to win the beauty contest to get the IPO business of young companies.
Things got so bad in the 1990s and early 2000s that the analysts had to make up new “metrics” altogether. Ratios which had been exhaustively vetted and used for decades and were the valuation gold standard suddenly became quaint. Granted it’s hard for a company to have a P/E!* when there is no foreseeable E. But they just made stuff up. Eyeballs or number of people in the world divided by people that own or want to own a computer times $100. It was nonsense. Not even creative nonsense. Just run-of-the-mill nonsense. They were pulling magical numbers out of a hat to pad their bonus checks.
But that’s the job of an analyst: to determine, or at least make a justifiable, defensible estimate. Show me the E or the sales or the revenue at some future date to justify a price today of $X. Instead, they just made stuff up. There was
(and still is) almost disbelief when some analyst is told that retail traders actually relied on or used his research and analysis as the justification to purchase a stock. They most likely have to cover their mouth to suppress a giggle (I’m actually laughing now as I write this).
This should be shocking only if you have an altruistic view of Wall Street. And there aren’t many of those left. And what reason could you possibly have for that? If you look at Wall Street’s two original missions—first, to allocate capital formation efficiently, and second, to fleece Main Street—much of what we’ve witnessed and tsk-tsked these last twenty years becomes expected and consistent, rather than the “ugly, rogue” elements as it’s been spun.
Zvi was a rainmaker. He sold dreams. He sold wild things that felt as though they could not possibly be true.
But what if they were?
That was the question now. For him, me, our investors. Everyone.
What if they were?
* Price to Earnings ratio, the conventional way to value stocks.
CHAPTER ELEVEN
FITTY
______________
WHITNEY AND WILENS WERE ONE TYPE of investor, the predictable kind. But we were ready to talk to almost anyone. One the more unique pitches came courtesy of Franz Tudor, another man I would entirely misread. Franz, whom we took a chance on at Incremental, was a trader with a colorful and checkered past. He had worked for Raj Rajaratnam at Galleon, Art Samberg at Pequot Capital, and even Stevie Cohen at SAC Capital*. Franz came with a number of ace connections in the healthcare industry. While working at a proprietary trading firm called the Schottenfeld Group from 2006–2007, Franz had become their go-to healthcare guy. In the spring of 2007, he was white-hot, having given Schottenfeld’s traders several very profitable tips. One well-timed tip involving Medimmune (MEDI), the maker of FluMist, made the firm a fortune when AstraZeneca bought the Maryland-based company for $15.2 billion. Nobody at Schottenfeld knew exactly why Franz was so confident about a MEDI acquisition, and nobody dared to ask. They just bought stock. Others throughout the hedge fund industry did the same. In the weeks leading up to the acquisition, SAC Capital increased its Medimmune holdings from about 150,000 shares to about 800,000 shares. Shortly after the deal was announced, SAC sold nearly its entire stake. Perhaps not coincidentally, the SEC opened an investigation into SAC Capital for potential insider trading before the Medimmune acquisition. The Schottenfeld partners bought Franz a black Cadillac Escalade as a “bonus” for Medimmune. Several Schottenfeld traders could have bought houses with their profits from this trade. Then, a few months down the road, Franz got ice cold and started losing the firm money. The partners demanded that Franz return the Escalade and, adding insult to injury, famously made Franz prepay for parking when he returned the car. Janet Jackson may have recorded “What Have You Done for Me Lately” way back in 1986, but it was Wall Street’s longstanding anthem going back to the Gilded Age.
After Franz “blew up” at Schottenfeld, we hired him. While not a great trader, we figured that he could help us raise some money, and perhaps give us a few good ideas. The key for us would be limiting his downside risk. Given how he had fallen from his lofty perch, it was understood that Franzie owed us big time for this job. After all, we were giving him another chance—a rare chance—to produce profits.
I was surprised one afternoon when he said he might be able to secure us some significant capital. The source of this potential bounty was not a bank or a bored trust-fund banker, but a musician. It turned out that when he wasn’t trading stocks, Franz moonlighted as a hip-hop record promoter. Through some confluence of music industry connections and good luck, he said he’d gotten us a meeting with Curtis James Jackson III, aka rapper 50 Cent (“Fitty”). A few weeks earlier, Franzie had run into Fitty at a midtown Manhattan recording studio, where Franz was working on the production of a new track for his client Pittsburgh Slim, an Eminem wannabe with ties to Jay-Z and Def Jam Recordings.
Despite several debriefings, I still wasn’t sure what Franz had told Fitty about Incremental, and I was suspicious of his motives. I was assuming this meeting was probably just a chit, a way for Franz to demonstrate his good faith or thank us for taking a shot on him. Either way, it would be interesting to see how a baller like Fitty rolled. Zvi, Nu, Franz, and I all came along to Fitty’s recording studio in Chelsea. We went dressed to the nines. Even Franz had put away his pale blue Sean John sweatsuit and thrown on a dark blue three-button suit and a red Hermes tie. We gave each other a quick once-over and wiped the smirks off our faces. We were ready for business.
“Franz, we’ll follow your lead,” I said.
I knew we had a difficult pitch ahead of us, my instincts telling me that this was just a “feeler” meeting. After all, this was 50 Cent, a world-renowned music icon with insane talent, deep pockets, and financial acumen that belied his humble origins.
The eight Advil and Venti “blackeye” were doing all they could to alleviate the pounding headache. I’d spent another long night partying before this meeting. I looked at Nu, always a good gauge of relative hangovers.
“You feel as awful as you look?” I asked.
His thick neck was spilling over his starched white collar like a muffin top, and beads of sweat were rafting steadily down his forehead, temples, and cheeks, despite the frigid February air. Nu could only offer a guttural grunt. By bringing Nu, I knew that we had broken one of our cardinal Incremental commandments: Thou shall not allow Nu in any important meetings.
Yet there was simply no way to keep him out of a meet-and-greet with 50 Cent.
I stared at the heavily reinforced steel door to the studio. It was a little intimidating. I had no idea what to expect inside. Maybe having Nu here wasn’t such a bad idea after all. Like Mary’s mentally disabled brother in There’s Something About Mary, Nu had a unique brand of strength he could summon in extreme situations. He used to brag about honing his fighting skills in his modest Brooklyn home, fighting gladiator style in the living room with Zvi and their dad.
We gingerly approached the steel caged elevator on the lobby floor, where we were greeted by a sinister looking guard, wearing all black, accentuated by a black sidearm. Black was Fitty’s color of choice.
“Can I please see your IDs, gentlemen?”
I wondered how much they were paying this human shield, and whether he had a kill switch for the elevator if things got heated.
We rode the elevator up. The motif here was steel, the architect’s likely inspiration being a post-apocalyptic octagonal dystopia. We looked at each other with a quizzical “What the fuck?” expression, and were led to Fitty’s office by yet another strong man in black. When we reached the office entrance, the defense became even more impenetrable. The door was grenade-proof, the glass bullet-proof, and the entrance protected by an enormous brother wearing a baggy, dark denim outfit that could have housed a family of refugees.
Franz took the lead.
“Hi, Franz Tudor. I’m here with the partners of Incremental Capital. We have an appointment with Fitty.”
I had to give him credit; he made it sound as if meeting between us and Fitty happened regularly.
We were admitted. Inside, the denim giant gave us a TSA-style pat down and an attractive office assistant offered us water and led us to the waiting room with its framed wall posters, platinum album covers, and a slew of magazines with 50 Cent gracing the covers. We soaked in testimonials to his genius and wealth for a few moments before Mr. Cent himself sauntered in.
“Fitty,” Franz said, a note of relief in his voice. “Hey, man.”
They exchanged pleasantries and an arm bump. Fitty wore a Yankee cap and was dressed down in jeans and a sweatshirt. But the guy shadowing him was wearing enough jewelry to qualify as a Diamond District satellite office. Franz then introduced us.
Fitty smiled.
“Hey, fellas. This is my main man, Sha, and that’s my girl Ashley. You can call her Ash. Y’all gotta get through Ash in order t
o get to me. She’ll take care of y’all. Let me get with Sha. A’ight now.”
And with that, he was gone.
“That’s Sha Money right there,” Franz said, pointing through the bullet-proof glass to the guy talking with Fitty. “He’s the real deal. Fitty’s business manager. Handles all his investments.”
Sha’s real name was Michael Clervoix III, but in this world he was known as “Sha Money, XL.” I guess if you made enough money in hip-hop you got your own Roman numerals. Or maybe it just meant “extra-large.”
I was impressed by the surroundings, but still essentially skeptical. Maybe Sha Money did handle deals, promotions, and endorsements on the music side, but a guy as rich as Fitty had to also have an outside Wall Street financial team. Sha looked like a street gangster, even though he wore diamonds worth more than I would take home this year.
But it was Ashley, not Sha, with whom we would speak.
Ashley was short and attractive in three-inch pumps, a respectable length cream skirt and blouse, and her hair pulled back in a tight bun. Her assistant, Marcus, an eager to please young black man in an argyle V-neck sweater and Gucci eyeglasses, escorted us into a large conference room with a distinctly modern feel. The layout could have been borrowed from Sullivan & Cromwell, or any other buttoned-down midtown law firm.
Zvi and I entered the conference room first, and I whispered: “Feeler meeting, or do Franz a favor?”
We didn’t plan this shit until the last minute sometimes.
“Feeler, get to know you,” Zvi immediately answered. His cocksure response didn’t surprise me one bit. Zvi operated in two modes; confident and over-confident. It was a refreshing counterpoint to my own personality, which rotated between cynicism and anxiety.
Confessions of a Wall Street Insider Page 15